Updated: Jun 9
“Far from the madding Crowd’s ignoble Strife,
Their sober Wishes never learn’d to stray;
Along the cool sequester’d Vale of Life
They kept the noiseless Tenor of their Way”
Thomas Gray (1716-71)
June 8, 2021 | In this issue of The Institutional Risk Analyst, we survey the scene of “meme” investing, a fascinating phenomenon that reminds us that humans are anything but rational, especially when confronted with change. A meme, for those unfamiliar, is:
1 : an idea, behavior, style or usage that spreads from person to person within a culture. 2 : an amusing or interesting item or genre of items that is spread widely online especially through social media.
One of the downsides of the FOMC’s social engineering is that deflation in financial assets or prices more generally is never allowed to occur. This means that the portion of the market that is, to be polite, irrationally exuberant, is never purged from the system. There is no reset, no time out from the silliness, thus the speculative froth simply grows until it spills out of the glass. Fed Chairman Jay Powell effectively is short an equity put option to the world.
The narrative is the carrier of the meme, the river of absurdity and credulity that transmits the speculative virus to the broader population. As more and more people became aware of the get-rich potential of bitcoin or other crypto currencies, for example, the meme narrative expanded, spawning an army of true believers that will tolerate no disagreement with their faith.
The speculative madness is not limited to ethereal concepts like crypto currencies and the growing number of derivatives. Consider the meme icon and theater operator AMC Entertainment (NYSE:AMC), a recent high-flyer that has used the artificial environment provided by the FOMC to raise billions of dollars to support a business that seems headed for the dust heap of history.